Posts tagged ‘Permian’

Barely three weeks into the New Year, US upstream merger and acquisitions have sizzled as players in a charged-up industry, hungry to get moving after two-plus years of low oil prices and curbed activity, position not just for the up-cycle but the next decade or two.

In the last year, commodity prices have improved considerably. While oil prices were sub-$40/b in early 2016, producers were cutting back on new drilling and focusing on efficiencies — by cutting costs and concentrating drilling in the highest initial production (IP) rate counties — to get the most bang for their buck.

Clearly, the alleged deal between OPEC members and other cooperative nations has generated a fair amount of optimism among market participants. However, given so many unknowns and the near term mentality of the agreement, what the future may hold with respect to production and prices is, to say the least, a moving target. Nonetheless, as prices are expected to rise, there is upside potential for production and internal rates of return (IRR), particularly in premier basins like the Permian.

The way US E&P operators are adding rigs, planning activity ramp-ups, preparing to raise capex and looking forward to renewed production growth in 2017, you’d be tempted to write finis to a harrowing two-year industry downturn.

During third-quarter 2016 earnings calls in the last few weeks, oil operator after operator unveiled what became surprisingly repetitive near-term plans: stirring the production pot by slipping a rig or two into the field during the final months of this year, kicking up the capital budget modestly and then returning to production growth in 2017.

The US and Canada aren’t slowing oil production, as many predicted when it appeared oil prices were settling into a lower pattern for an extended time period. Efficiencies, which fostered the growth of tight oil production, have continued to protect margins, as Benjamin Morse and Starr Spencer explain in this week’s Oilgram News column, New Frontier.

Many of the themes raised Monday at IHS CERAWeek were reprised Tuesday, the second day of the conference. But Tuesday’s offerings were decidedly more global, and our oil editors here share some of their thoughts on what they saw and heard.

You can find news stories and tweets from Tuesday shared on @PlattsOil (including one tweet that we felt needed a retweet from @PlattsCoal). You can also read thoughts from our reporters on the first day here.

This time a year ago, the United States produced about 66 Bcf/d of natural gas and the national average price of next-day delivered natural gas was $4.59/MMBtu. Today, the US is producing roughly 72 Bcf/d of natural gas and the average national price of next-day delivered gas, as of April 13, was $2.35/MMBtu. It is safe to say that we are in an environment of depressed prices and surplus supply.

Much has been made of the domestic light sweet crude flooding US markets, and we attempted to capture some key points about some of that oil in this infographic centered on one of Platts key price assessments: Light Houston Sweet. For a limited time, we’ll be sharing weekly LHS wraps in the Light Houston Sweet Analysis feature, and we’re also sharing the daily price assessment of Light Houston Sweet and how much it rose/fell on Twitter with the hashtag #PlattsLHS. Click on the infographic to see a larger version.

Upstream operators that released 2015 preliminary capital budgets a few months before the year-end holidays have returned to the surgical table for more fiscal liposuction on already slender frames. Despite this, they and other producers insist they can continue to grow oil production this year, and for some, growth will be in the double-digits.

Last week alone, small producers Halcon Resources, Sanchez Energy and Concho Resources all slashed projected 2015 capital spending by 48%, 29% and 33%, respectively. In some cases this was the second revision from preliminary figures announced before oil prices began their steep descent to current levels below $50/b.

They are not alone. Even the bigger players such as Continental Resources, a big Bakken Shale producer, said in late December its capex would be 41% lower than contemplated in early November when prices were still in the high $70s/b range, while ConocoPhillips will shave 20% off its budget compared to last year.

Given the gradual but precipitous drop in oil prices in recent months, especially in the last week or so, industry has poor visibility on next year’s activity until the majority of upstream companies release their 2015 capital budgets.

And even those operators that have guided on next year’s capex, did so at a time when oil prices were a good $10-$15/b higher than they are currently.

But some preliminary clues are emerging at post-OPEC industry conferences in recent days, constituting the first public remarks after a controversial meeting last week when the cartel took a decision to maintain its oil output at a current 30 million b/d.